Kindle Fire profitable at estimated $150 BoM

SAN JOSE, Calif. – Amazon will make a profit on hardware sales of its Kindle Fire, but probably only a third to a quarter as much as the Apple iPad and Playbook, according to estimates from UBM TechInsights that peg new tablet's bill of materials at $150.

With those costs, Amazon will make an estimated $49 profit on sales of its tablet hardware. By contrast, UBM TechInsights estimates Apple and RIM make $150 to $200 in gross profits on their tablets.

"This can be viewed as a major blow to all
Android tablet manufacturers who really have no way to compete since the
channel mark-up would require companies put their tablets at or below
cost to beat the Kindle Fire price--and they still all lack the content
that the Amazon storefront has," said Jeffrey Brown, vice president of
business intelligence at UBM TechInsights, a division of UBM LLC, the
publisher of EE Times.

Before the launch of the Kindle Fire,
reports circulated that Amazon was rushing the product to market and, as
such, taking its design cues mainly from the 7-inch Playbook, already
the subject of teardown reports. UBM TechInsights estimated the bill of materials for the Playbook at $170.

"The Amazon Kindle Fire looks similar in fit and form to the Blackberry Playbook, but it’s been stripped of its bells and whistles to help bring down the price," said Brown.

"We expect that the Kindle Fire's dual-core processor will be the TI OMAP 4430, just like the Playbook, it will use similar flash memory from SanDisk and Toshiba and we don’t expect the similarities to stop there," he said.

The Kindle Fire cuts $10.50 from the Playbook costs by leaving out 5 and 3 MPixel front- and rear-facing cameras. Amazon saves $8 by using 8 Gbytes less memory than RIM, and another $1.50 by cutting out Bluetooth, GPS and microphone support, UBM TechInsights said.

"The real benefit for Amazon in entering the tablet space is the advantage of a direct, established, sales model on Amazon.com versus the rest of its Android competitors," said Brown. "They also have name recognition and a wealth of content behind the device which puts them on a level with Apple," Brown said.

The hardware profitability may be low but I think that key is that the tablet brings the Amazon store-front, which we usually access on a PC, to the tablet screen. That should be the main target of profit instead of the hardware.
Amazon is not directly competing w/ Apple on the hardware-feature front but more on its price and Amazon's broad service and catalog.

Now imagine if they start a movie/music subscriptiion like Apple does then they would give stiff competition. Hadrware is the key enabler but the profits lie in software services. So they appear to have got the equation right.

I think Amazon is betting on the volume for Kindle fire. With the price tag set at $199, it is expected to be sold in large volume. People who are hesitate at shelling out $500 on an iPad but need a handy tab (like me :)), will definitely think about buying it. Though I don't think iPad is going to give-up market share to Kindle Fire as the features doesn't compare "apple to apple" and the people who wants to get an iPad will still buy it. Kindle Fire seems to have a good potential to dominate the low cost markets.

well, i calculate the profit margin other way: Amazon is making 50USD for 150USD i.e. 1/3rd profit. Now if Apple is making $200 for $300 then its 2/3rd profit....so kindle is making half the profit of what Apple is making...Dollar of Dollar. Remember that Apple's products are usually high profit margin.

does this tablet is coming without camera and other wireless interfaces or it is designed with some lower features. Looking forward to see the complete tear down and comparision with play book. Certaily ti is gaining a good traction now.

Most people who buy fire will subscribe to Amazon Prime at 79$ for the content. And those who prime subscription shop more (regular stuff) compared to people without prime. Another way amazon has justified the low upfront cost.

I currently have a kindle. (old keyboard type = $139 Kindle).
Since July 2011 I have bought roughly about 100 books at 1 to 8 dollars each. Say average is about $2/book (most books I buy are either $0.99 or $1.99 but some up to $8 when I really want the e-book). If I'm an average Kindle and e-book buyer then this translates into approximately $140 that Amazon has made from me on e-books alone (so far). (On e-books Amazon makes 65% and 35% is royalty to the authors of the e-books.)
So Amazon will be making much more on the contents (e-books, mp3, movies, magazines, etc.) than on the devices themselves.
I have to admit, Jeff is a business genius.
God willing, I plan on getting a Kindle Touch for Christmas 2011.